Satyajit Das: Europe’s The Road to Nowhere, Part I – Fiscal Bondage

Yves here. As much as the image of Frau Merkel decked out as a domme is more than my tender sensibilities can take, the metaphor seems to apt for writers like Das to pass it by.

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Financially futile, economically erroneous, politically puzzling and socially irresponsible, the December 2011 European summit was a failure. Only the attending leaders and their acolytes believe otherwise. German Chancellor Angela Merkel’s post-summit homilies about the “long run”, “running a marathon” and “more Europe” rang hollow.

The proposed plan is fundamentally flawed. It made no attempt to tackle the real issues – the level of debt, how to reduce it, how to meet funding requirements or how to restore growth. Most importantly there were no new funds committed to the exercise.

Fiscal Bondage…

The centrepiece of the new plan was a commitment to a new legally enforceable “fiscal compact” requiring government budgets to be balanced or in sur, with the annual structural deficit not to exceed 0.5% of nominal Gross Domestic Product (“GDP”).

The language was Orwellian and incomprehensible in equal measure: “Member States shall converge towards their specific reference level, according to a calendar proposed by the Commission.” The European Commission is to approve national budgets with, curiously, the European Court of Justice designated as final arbiter.

Whatever the long-term merit of greater budget discipline, the compact recycles previous Treaties, which have been honoured in the breach rather than observance. Since 1999 or from the time of their entry, Euro-Zone member countries have recorded nearly 70 breaches of the existing Stability and Growth Pact, including nearly 30 occasions when budget deficits exceeding 3% of GDP were allowed because of recessions. Germany and France have been in breach on at least 6 occasions each.

Just as Margaret Thatcher favoured “sado monetarism” (a term coined by Denis Healey), the German plan for Europe is “fiscal B&D” (bondage and discipline).

The plan may result in a further slowdown in growth in Europe, worsening public finances and increasing pressure on credit ratings. This is precisely the experience of Greece, Ireland, Portugal and Britain as they have tried to reduce budget deficits through austerity programs. This would make the existing debt burden even harder to sustain. The rigidity of the rules also limits government policy flexibility, risking making economic downturns worse.

Fiscal controls may not prevent future problems. Until 2008, Ireland, Spain and Italy boasted a better fiscal position and lower debt than Germany and France. The weak economic fundamentals of these countries were exposed by the global financial crisis, leading to a rapid deterioration in public finances.

Irrespective of the treaty’s provisions, enforcement will be difficult. The Excessive Deficit Procedure call for “automatic consequences unless a qualified majority of euro area Member States is opposed”. The provision defines how any breach and automatic sanction can be waived rather than the consequences of failure to comply. It is difficult to see France and Germany voting to levy sanctions on each other. In 2003, there was an ignominious episode where France and Germany each breached the deficit ceiling but voted against condemning each other.

Recalling John Maynard Keynes’ observation about the Treaty of Versailles, if actually implemented and strictly followed, the compact will skin Europe, especially those in the weaker economies, alive year by year.

The fiscal compact did not countenance any writedowns in existing debt. It also did not commit any new funding to support the beleaguered European periphery. Germany specifically ruled out the prospect of jointly and severally guaranteed Euro-Zone bonds. Instead, there were vague platitudes about working towards further fiscal integration.

Rebranding Bailouts...

Instead of dealing with the financial problems of the central bailout mechanism (the EFSF – European Financial Stability Fund), European leaders chose the re-branding option.

The EFSF will remain active until mid-2013 and then subsumed into the permanent European Stability Mechanism (“ESM”). The ESM will be implemented by July 2012 once 90% of member countries have ratified it – “rapid deployment” in European terms.

Crucially, the overall ceiling of the EFSF/ESM remains at Euro 500 billion, but will be reviewed in March 2012.

To increase available funds, the EFSF leveraging rules will be implemented more quickly, using the European Central Bank (“ECB”) as an agent in transactions. Given the indifference towards various leveraging proposals, especially from emerging nations like China, the ability to reach the target of at least Euro 1 billion in capacity remains in doubt.

Long-standing problems of the original EFSF structure remain unaddressed. The creditworthiness of Italy and Spain (which make up around 30% of the EFSF’s supporting guarantees) remains questionable. Pressure on the ratings of stronger guarantors (Germany, France, Netherlands, Finland and Luxembourg) complicates the ability of the EFSF to raise funds. Rating agencies have already warned of the risk of a rating downgrade.

Currently, the EFSF is only issuing short-term bills to finance its commitments (under the bailout packages agreed for Greece, Ireland and Portugal). Its long term funding costs are nearing the rate it is permitted to charge borrowers. The EFSF was even forced to deny reports that it would need to include a health warning about the risk of a rating downgrade and also break-up of the Euro in documentation for any new fund raising.

Given the problems of the EFSF especially the ratings threat, the acceleration of the ESM initiative is an attempt to reduce the reliance on the member nation guarantees. The ESM will have paid-in capital (Euro 80 billion) which member countries can contribute.

Like its predecessor – the EFSF – is leveraged – Euro 80 billion supporting Euro 500 billion, equivalent to 6 times leverage. Continuing the circularity, nations like Italy and Spain will borrow to contribute capital to the ESM to allow the ESM to buy Italian and Spanish bonds. The ability of the ESM, like the EFSF, to raise the additional Euro 420 billion is also uncertain.

Calling in the Cavalry …

Euro-Zone nations and other EU members were asked to provide (up to) Euro 200 billion to the International Monetary Fund (“IMF”), to be lent, in turn, back to Euro-Zone countries. As with the ESM, it is unclear how some countries will finance their contributions and the wisdom of countries de facto lending to themselves. The curious arrangement was necessary to avoid breaching existing European Treaties.

The arrangement, most likely, will be an IMF administered account, with the full risk being taken solely by the providers of funding. In the unlikely event that the IMF used its general resources, all members would have to bear the risk.

Full involvement of the IMF is difficult. A loan on the required scale represents a serious concentration risk for the fund. In addition, the funding would be released in tranches subject to meeting IMF conditions. IMF loans also have seniority over other obligations. So IMF involvement may reduce the relevant country’s access to commercial funding.

To date, European countries have only committed Euro 150 billion. Britain is a notable absentee, having rejected the Treaty changes, refusing the invitation to join the Europeans on the maiden voyage of the Titanic.

The summit communique looked “forward to parallel contributions from the international community”. The IMF (Influential Monied Friends) have proved reluctant, with the US and others unwilling to get involved. Only Russia has indicated a willingness to contribute (Euro 20 billion).

Bundesbank President Jens Weidmann observed that Germany would only release its contribution (Euro 45 billion) if: “there is a fair distribution of the burden amongst the IMF members. If these conditions are not fulfilled, then we can’t agree to a loan to the IMF.” He noted that: “If large members, for example the USA, were to say ‘we’re not taking part,’ then from our point of view it is problematic.”

Don’t Bank On It…

Parallel to the Summit, The European Banking Authority (“EBA”) updated its stress tests, increasing the amount of capital that European banks need to raise to Euro 115 billion. The increase was necessary to cover a fall in the value of sovereign bonds held by the banks. As the data used was dated, further deterioration of the value of holdings may mean that more capital will ultimately be needed.

Italian, Spanish and Greek banks have the largest capital requirements. Italian banks need to raise Euro 15 billion. UniCredit, which holds around Euro 40 billion in Italian government bonds, needs to raise Euro 8 billion. Spanish banks need Euro 26 billion with Santander needing Euro 15 billion. German banks also need capital with Commerzbank, the country’s second largest bank, needing Euro 5.3 billion.

With share prices down significantly (40-60% for the year) and the likelihood of weak profits driven by write-offs and lack of balance sheet growth, European banks face difficulties in raising capital.

Unlike US banks in 2008/2009, European banks are reluctant to cut significant dividend payouts. Spanish bank Santander plans to pay shareholders Euro 2 billion in cash and more in stock (over 15% of its stated capital requirements). They argue the need to preserve their brand, compensate investors for poor share price performance and a return to profitability. Curiously, the EBA or the Bank of Spain has not intervened to force a suspension of dividends to husband capital.

The most likely source is national governments providing the capital, adding to their debt problems. Germany has already reactivated its bank bailout fund for this purpose.

Banks can also lift their capital levels by reducing the size of their balance sheets. European banks could sell (up to) Euro 2 trillion in assets. In addition to capital concerns, such a move is driven by liquidity factors with European banks having trouble raising dollars at acceptable cost.

Credit Agricole, the third largest French bank, is planning to reduce assets by around Euro 15-18 billion by the end of 2011 and by Euro 60 billion by end 2013. This will improve the bank’s capital position and also reduce its funding needs by Euro 50 billion. If all banks undertake similar actions, selling foreign assets and shutting (mainly overseas) operations, then the effect on the broader economy will be significant. The tighter credit conditions and lower economic activity may increase normal credit losses setting off a negative back loop.

Asset sales by European banks to improve capital are acceptable to the EU as long as they “do not lead to a reduced flow of lending to the EU’s real economy”. Withdrawal from foreign markets is already having a noticeable impact in Eastern Europe and Asia. A slowdown in these economies will indirectly affect Europe, reducing demand for European exports.

Europe is now firmly on the road to nowhere, with doubts whether there is enough money or political will to retrieve the position.

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34 comments

  1. jake chase

    Despite the ruthless logic of this essay, the game will most likely continue. Institutions will keep refinancing soverign debt, traders will continue milking every transaction, banks will continue writing credit default swaps, austerity will be imposed on the populations of profligate peripheral countries whose public assets will be stripped through financial slight of hand. At the last second, free money will be distributed to the most conspicuously criminal participants in the debt fandango, and their crimes will be swept beneath the rug. The idea that these systemic financial difficulties (all of which are at bottom political) can be “solved” without disturbing imbedded power relations is a fantasy. Debt which cannot be paid will not be paid, but there are endless ways of repudiating debt which all boil down to the manufacture of words on paper.

    The greatest opportunity offered by the past three years has been for intellectuals to demonstrate how smart they are, without ever being right about what happens next.

    1. Valissa

      The idea that these systemic financial difficulties (all of which are at bottom political) can be “solved” without disturbing imbedded power relations is a fantasy.

      DING! DING! DING! Bulls eye… give the man a kewpie doll ;)

      One thing I’ve observed from reading long histories is that trends are hard, if not impossible to control, despite the best (and worst)attempts of governments or other power institutions they tend to continue on and either crash or dissolve or merge into another trend. Trends (good, bad, neutral) basically seem to have a life of their own once they get going – for example, all the financial innovations (overly clever maths) of the past generation can’t be put back in the djinni bottle.

      The current state of the GREAT MONEY GAME (it’s been called a “river of money” and a “tsunami of money”) reminds me of the story of The Sorceror’s Apprentice, except there is no ‘master sorceror’ (as in the not-so-fairy tale) to correct the faulty incantations.

      Attempts to launch countering trends may be more fruitful to pursue. That way you are offering the players another venue to play in, and if enough jump on the new trend the older trend loses power.

      1. LeonovaBalletRusse

        Valissa, thanks for that succinct, insightful summary. The imagery is spot on. You need to get that song on YouTube with the appropriate visuals. Do you have a friend in Disney, or is the OLD “Fantasia” out of copyright protection?

      2. Jim

        Valissa, insightful comment.

        I see two trends.

        (i) The rise of more sovereign nations. Just glance at the breakup of the USSR and Easter Europe.

        (ii) The EuroZone, which seeks to form the United States of Europe, taking 17 nations out of play. The Eurocrats in Brussels will “lose it all” if they concede that their “mega” project is ill-fated.

        Which trend wins?

        I’d bet on (i).

  2. craazyman

    I’ve Figured it Out

    Europe can’t summon the discipline to get competitive. That would mean it has to exercise, where the lungs the heart and the heart pumps the blood to the legs and the legs run and the blood vessels carry the blood around — like a big cooperating ensemble.

    What Europe wants to do it give itself liposcution. A big tube from out of earth’s atmosphere comes in and sucks up all the lazy fat cells sitting around doing nothing, and spews them like microscopic droplets of nose sneeze mucus into interplanetary space where nobody can seem them.

    No exertion required.

    1. Valissa

      This marathon of meetings to solve the EU crisis is sorta like ongoing training to improve their ability to “extend and pretend” … you know… brain muscle extension followed by imagining the muscle is larger than it really is (the pretend part). Of course there is very little muscle tissue in the brain area, so perhaps that’s another part of the problem.

      1. craazyman

        I am honing in Valissa, in my spare bus-riding time, on a theory of economic “competition”. I had some massive breakthroughs yesterday but forgot them today. Hopefully I’ll remember. It had something to do with there being “cooperating ensemble structures” of society by which people meet their needs, and the destruction of those in the name of “competition”. When a society has its cooperating ensemble structure destroyed (like the Mexican hog farmers) it is said by the destroyer’s money changers to be “uncompetitive”. The real question is the nature of the competition and the process by which a social structure becomes “competitive” or “uncompetitive”. And this gets into my theories of the money/property wave duality and the role of money as projection of cultural imagination; and ultimately, at a foundational level, it emerges from my my ontological theories about the nature and purpose of human reality, centering mostly on the role of imagination and the ascension of the spirit through the flesh. It gets abstract but that’s what happens when you drink and take drugs. I’m not sure I can make any investment predictions based on it, but consciousness seeks to enlarge itself using money as a form of personal spirit projection, so my inclination is not to be too short Europe. but it doesn’t always work, like during most of the 20th century. It is hard to make money easily. I guess that’s why they made banksters.

      2. craazyman

        sorry for the postscript ramble. actually, my theories do work for most of the 20th century, quite well, but the breakdowns (WWI, WWII) render the predictive value challenging, as is often the case with these kinds of things. They can explain things in a certain lucidly articulate way, but they have a hard time predicting. George Soros’ made the same point about his theory of relfexivity, so if he does it, I’ll do it too. Although my theories have a stronger long-term predictive power, I think, than reflexivity, which is an observation of process and not a teleological endeavor. At any rate, I think all this stuff is mostly nonsense, even my own theories, it only in artistic creation itself that truth is fully revealed.

    2. LeonovaBalletRusse

      “can’t summon the discipline to get competitive.” That’s why Himmler, Heydrich, and Hitler had to murder the Jews. The beneficiaries of “Lebensraum” THEN carry the DNA of the beneficiaries of “Lebensraum” NOW.

      “The War Against the Jews” (Aarons and Loftus) continues — the realpolitik “Total War” apostles of Clausewitz excepted.

      “CONJURING HITLER” (Guido Giacomo Preparata); “HITLER’S BENEFICIARIES” (Gotz Aly), “AMERICAN DYNASTY” (Kevin Phillips), “THE SHOCK DOCTRINE” (Naomi Klein), “THE BUSH AGENDA” (Antonia Juhasz). Holy Roman Reich II to III to IV in two generations of “Elite” DNA, by their Agents in Office.

  3. Pat

    What about the recent, more than a trillion dollar injection to the banks and national governments of Europe, provided largely with a $600 billion swap with the US Fed? If they use fractional lending of 3 to 9 to whatever, that will give Europe the funds it needs indefinitely — many years.

  4. Yancey Ward

    I am sorry, but this is mostly incoherent claptrap. Europe’s problem is the debt that has accumulated and is accumulating. Pretending there are any easy or better solutions than getting control of the overspending by governments is going to fail.

    Really, I find unfathomable that this criticizes in one essay both the fiscal controls the new pact promises (I don’t believe promises as neither does Smith, apparently) due to past inability to live up the Maastrich treaty, and at the same time criticizes the attempts to get the debt increases under control by paring back government spending/deficits. Pick one argument and stick to it.

    1. sidelarge

      Arguing that a policy is a joke no matter how you slice it is a perfectly rational thing to highlight the absurdity of said policy.

    2. Lambert Strether

      Yancey: Morally, a debt is just a promise. Why is a promise to pay banksters their pound of flesh more important than, say, a promise that elders wouldn’t be left to starve and die in their own filth?

  5. Valissa

    “The language was Orwellian and incomprehensible in equal measure” LOL, so true! It’s all , and rather piss poor CYA, at that.

    Another great post Das, thanks! Except for one thing, you forgot to put it to music… so here you go…

    Road To Nowhere (covered by the Editors)http://www.youtube.com/watch?v=ETuahEXrh2s

    I’m not a fan of Talking Heads and much prefer the very differently styled Editors cover, but many disagree so here’s the original…

    Talking Heads – “Road To Nowhere”

    1. Smellslikechapter11

      Better yet if we are talking talking heads

      “I am just some ordinary guy burning down (my) house”

  6. Susan the other

    China seems to define the yuan by its use. We just pretend the Chinese are chasing “profit” so we can continue to justify our own obsession with it. So probably the value of the yuan is determined by what it accomplishes. Currently it is accomplishing another building spree. But nevermind. The Chinese don’t know what the yuan “is worth” until after its use. One day soon it will be used to clean up the air in Beijing. No wonder they are noned by the EU asking them to fund the EU’s debt – debt intended to be incurred for valuing the Euro preemptively. The EU will never grok the quantum nature of money – that it is only valuable after it appears in some valuable incarnation of its use.

  7. Lafayette

    WHOA THERE!

    Das: The European Commission is to approve national budgets with, curiously, the European Court of Justice designated as final arbiter.

    Das fails to realize that the Maastrict Treaty, the foundation of the EU euro, called for a 3% of GDP limit on debt and penalties for those systematically overstepping the limit.

    The penalties were never invoked. The Commission did nothing. That laxity was due to the fact that the last five Commission Presidents (of a total of 12 so far) are from southern European countries. (Counting Luxembourg as southern-European because the country speaks French.)

    So, the Germans decided that the negligence had to be fixed once and for all – because (Ta-Dahhh!) there is no elected European President to kick ass. All presidents of the Commission are unelected and nominated by the country leaders. The European Commission therefore had no real power to enforce fines upon the EU nations that went beyond the debt-limits.

    So, it’s fixed. And the Golden Rule of Balanced Budgets will also be introduced into national nation.

    Just what in hell to journalists like Das want? Those two measures are more than enough to prevent profligate spending in the future.

    Here’s what they want. An ECB with unlimited power to buy Bankster’s Bad Debt and let them off the hook at one euro to the euro.

    Well, maybe there’s another way. In fact, Greece showed that other way.

    The banksters took a haircut on Greek Debt. Now maybe they will take a haircut also on the Italy’s debt, where rates of 7% are being called on debt contracted at half that amount.

    I figure the banks deserve a haircut. (Me and Mario Monti, that makes TWO! ;^) They are just as much a part of the solution as they were part of the problem – meaning they lent easy money to profligate governments at low rates, which are no longer low.

    MY REAL POINT

    By the way, how’s that? I can’t get more than 2% on my savings account in France, but the banks get 7% from the Italian government’s debt?

    Whoa there! Somethin’ just aint right.

    So, its haircut time!

    1. Yves Smith Post author

      Guess you didn’t read the post, did you?

      Das clearly mentions prior violations of fiscal limits and how the Germans and French didn’t enforce against each other when they were both violating on the same time frame.

      1. Lafayette

        Das: To date, European countries have only committed Euro 150 billion. Britain is a notable absentee, having rejected the Treaty changes, refusing the invitation to join the Europeans on the maiden voyage of the Titanic

        The post is negative in almost its entire content, the above only somewhat indicative of Das’ venom.

        He does not acknowledge the fact that the EU is NOT the US – and therefore agreements are exceptionally difficult to achieve amongst 27 sovereign nations. Working within EU rules, as dramatically slow and cumbersome as it may appear, is the only way any progress may be achieved.

        And progress has indeed been made.

        I maintain nonetheless that key to any final solution is not necessarily only Merkel & Co bending to the obvious and allowing the ECB to buy Sovereign Debt but – as with Greece – the banks must take a haircut on that debt.

        And no one here seems to know why there is a difference of three times between the rate of ordinary savings accounts and that of Italy’s upcoming debt payment (due soon) – at 7%.

        Also, if Keynesian Stimulus Spending were possible and thus the EU showed some growth concurrent with a reduction of unemployment levels, the negativism would lessen considerably. But, for stimulus spending to happen, the countries would need to borrow from the banks. And we can’t have that, can we?

        So what is the solution, pray tell, beyond what the countries are presently doing. This austerity is NOT a preferred policy, but one that circumstances inflict upon country leadership.

        Anyone on this forum have any better ideas for resolving this problem? (Out with them, then.) And neither has Das the right answers …

        1. Foppe

          Anyone on this forum have any better ideas for resolving this problem? (Out with them, then.)

          Oh, how I love these self-important people who want to be seen as the voice of reason. “Put up or shut up”.
          OK, ‘s a suggestion (scroll down to “a modern jubilee” if you don’t appreciate what’s above it).

          1. F. Beard

            A Modern Jubilee would create fiat money in the same way as with Quantitative Easing, but would direct that money to the bank accounts of the public with the requirement that the first use of this money would be to reduce debt. Debtors whose debt exceeded their injection would have their debt reduced but not eliminated, while at the other extreme, recipients with no debt would receive a cash injection into their deposit accounts. Steve Keen from

          2. Lafayette

            Oh, how I love these self-important people who want to be seen as the voice of reason

            And how I despair of your ad hominems, fop. Have you nothing pertinent to the question asked in your quiver?

            The fiat funny money suggestion is NOT workable in Europe or anywhere else, because it is too radical pie-in-the-skyish. It ignores the fact that the debt is owed by sovereign states and owned by banks – so there will be no “transfer” to whomever/whatever.

            So, again, I ask, given the present circumstance, pray tell us noodle-heads, how an EU country can escape the strangle-hold of today’s banksters?

            That is, aside from paying down a “haircut” debt and using Quantitative Easing as well.

            Lesson learned: An ounce of prevention is worth a ton of cure, particularly in Finance.

          3. Foppe

            My dear chap,
            once you stop spouting your brand of pedantic “we must be realistic” claptrap, I’ll stop calling you on it (or, as you put it, “ad-homming you”). Accepting whatever seemed “feasible” to status quo maintainers motivated primarily by the desire to remain in power is a losing proposition. Now, I realize that you want to play the part of very conservative “liberal”, but if you won’t even allow yourself to think radically — which is quite different from acting thusly — you are just someone with nothing useful to contribute.

  8. LeonovaBalletRusse

    YVES, better to recall what Thorstein Veblen said about the Treaty of Versailles, so expertly framed by Guido Giacomo Preparata in “CONJURING HITLER” (London, Ann Arbor MI, Pluto Press, 2005), Chapter 2: “The Veblenian Prophecy. From the Councils to Versailles by Way of Russian Fratricide, 1919-20.”

    Also, with regard to your “sensibilities,” explore these “European” ways, then as now, in “APES OF GOD: A Novel by Wyndham Lewis” with Afterword by Paul Edwards (Apes of God: 1930; printed June 1981 in Santa Barbara and Ann Arbor by the Black Sparrow Press by Graham Mackintosh & Edwards Brothers Inc.). Recalling that Lewis was a friend of Ezra Pound and others of his political persuasion, please read Lewis’ Prologue: “DEATH–THE–DRUMMER” and PART VIII: “LESBIAN APE.” These are windows into a world.

    For the frame, I quote Paul Edwards (b. 1950; and “an editor of ‘Enemy News,’ the journal of the Wyndham Lewis Society. … works as a Lecturer in an Industrial Language Unit in Wolverhampton, England”):

    “No satire in English is more comprehensive and unrelenting than that in ‘The Apes of God.’ … The scientific rationalism it employs with such intensity to present human beings as programmed automata is simply the remains of the European vision of life when the significance that art gives to it has fallen away: ‘Deprived of art, the healthy, intellectual discipline of well-being is lost. Life instantly becomes so brutalized as to be mechanical and devoid of interest’ (“Blasting and Bombardiering, p. 259)” — [p. 637]

    YVES, do you think that covers it?

    Finally, note that Paul Edwards (b. 1950) ends his Afterword thus: “The laughter that this great satire provokes is of the kind Lewis described in his catalogue of the attributes of laughter included in the 1917 essay ‘Inferior.Religions’ (‘The Wild Body’ {ital.} [New York: Harcourt, Brace and Co., 1928], p. 238).” He continues:

    “4 Laughter is an independent, tremendously important, and lurid emotion.
    “5 Laughter is the representative of tragedy, when tragedy is away.
    “6 Laughter is the emotion of tragic delight.
    “7 Laughter is the female of tragedy.” — [p. 639]

    YVES, did you catch that POV in 1917, 1930, 1981? In 2011? Are we laughing?

  9. Lafayette

    For the first of the new year, both the Italian and the Spanish auctions passed surprisingly well; that is, at 6.63% for Italy (down from 7.2%) and at 5.13% for Spain, down from 5.7%.

    Neither country is out of the woods on its national debt and further help may well be required nonetheless from the EU solidarity fund.

    Still, analysts here in Europe figure that the Italian debt, more than twice that of Spain, will continue to reduce – particularly since additional taxes will take effect and the exterior trade balance is expected to improve as well, both raising Treasury revenues.

    Some good news, for a change … ?

    Yes.

  10. Fiver

    I gather there was a Christmas truce called and now the war against Europe is back in full swing? All because Monti didn’t lower interest rates again, and had the temerity to suggest things had improved (which they undoubtedly had relative to weeks and months prior)? Wouldn’t want to disappoint Mr. Market now, would we? Because if you do, nasty things like S & P downgrading France and perhaps Austria happen.

    You remember S & P, that bastion of integrity that looked the other way for YEARS while Wall Street raped the American people? How interesting that it fails to look away this time, and is on Europe like a rabid Doberman.

    ECB has already come a very long way towards where Mr. Market wants it – its balance sheet is showing “impressive” growth, it WILL do whatever is required to fend off the dogs (oops, I mean “investors”), and all the while assets are identified to be sold off and ownership of much of the Continent is set to change hands. And the IMF, which essentially reports to Geithner, just let’s them spin in the wind while the Shock Doctrine, version 2012, does God’s and Goldman’s work.

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